Regardless of your opinion on the IR35 legislation itself, there is little doubt that countless hours have been poured into preparing employers and employees for the change.
Whether you are in favour of the IR35 legislation being reversed or not, businesses and individual workers have spent months preparing themselves for changes that came into force in April 2021.
Whilst no one can be sure of the impact this reversal will have, I’m quietly confident we’ll all be spending many more hours ensuring our organisations are well informed and our temporary or freelance community of workers have been clearly communicated with.
How has the IR35 legislation changed?
In simplistic terms, the government changed who is responsible for deciding the outcome of an IR35 assessment from the individual to the business they provide their services to.
The assessment determines whether a contractor can operate as a self-employed individual or should be under an “employed” contract. The legislation itself has seen little change over the last 20 years with various elements determining how a worker should be engaged.
In the latest mini-budget, the Chancellor announced plans to reverse the IR35 and off-payroll legislation implemented in April 2021. In this article, we’re going to explore what that potentially means for employers and contractors.
What does it mean for contractors who moved from a self-employed contract to an “employed” contract in April 2021?
Having undergone the hassle of changing status 18 months ago, it’s likely many of these contractors will stick with the solution they transitioned to.
Limited companies may be dormant, business insurances would need to be purchased and potentially a significant amount of admin would be required for contractors to work back under their own business.
However, as the legislation reversal means the decision rests with the worker to determine their status (instead of the employer/end user as it is today) there may be little a business can do if a worker does decide to change status.
A worrying thought given is that assessments have already been done, the worker and employer have agreed that they do not qualify to sit outside the legislation yet and at the flick of a switch there will be little to prevent an individual from rolling the dice in the hope of paying less tax.
What is the potential bigger issue of the IR35 legislation change?
Whilst it’s important to be aware of an existing temporary worker’s status (self-employed or employed), it may be the easier issue to address. As the worker is known to the business, between now and April employers can ask directly if they intend to change their way of employment.
The area that is much harder to prepare for will be those in permanent positions who believe moving back to contracting could be better for their career and/or more lucrative.
Despite the challenging economic outlook, there are still a vast number of unfilled vacancies.
The criminal finance act 2017 affords HMRC the right to investigate a business or an individual who is suspected of fraud, unpaid taxes, money laundering etc.
If a worker remains with the same organisation but flips their contract from “employed” to self-employed, it could trigger red flags when it comes to their tax status. This risk may push those wishing to move back into self-employment away from their current organisation.
Therefore, an uptick in flexible workers could create a shift in the market. Businesses would potentially have the choice of paying a premium for immediate skills whilst avoiding the long-term commitment a permanent appointment creates.
On a positive note, this could create short-term solutions for organisations that need to push through a new project or plug gaps in their operation much more quickly than it would to secure a permanent employee.
There could, of course, be negative connotations to any significant change. With many businesses already finding it hard to attract talent for their existing job vacancies, many could find this number increases if the contracting world lures away some of their team.
Opening discussions early can allow organisations to plan for April. Maybe it’s another millennium bug or maybe it’s unfortunately another obstacle for the business to navigate in an already challenging time.